EMI Music and Universal Music Group reached a conditional settlement with venture capital firm Hummer Winblad over the firm's $13 million investment in the original Napster. But whether the parties' agreement will actually resolve their claims depends on whether the federal Appeals Court and the District Court let the labels off the hook from a prior ruling.

A stipulation and order filed today (Dec. 13) in the federal District Court in San Francisco reveal that the three parties reached a conditional settlement Nov. 29. Financial terms were not disclosed, but the order indicates that the parties will only dismiss their claims against each other if the court vacates a ruling made last April against the labels.

At that time, Judge Marilyn Patel ordered the labels to turn over privileged documents after finding that the record companies may have used certain information to mislead the U.S. government during an antitrust investigation into their online music services. While certain privileged communications may be kept confidential, the law includes a so-called crime-fraud exception making those communications subject to discovery during litigation. The labels appealed the ruling to the Ninth Circuit Court of Appeal.

The case, filed in 2000, essentially claims that Bertelsmann and Hummer Winblad are liable for infringing music traded on the original Napster -- which filed bankruptcy in 2001 and sold its name -- because they invested in the service.

Today's filing indicates that EMI and UMG on Dec. 5 requested the Appeals Court to send the issue back to the District Court so that Patel could decide whether or not to vacate that ruling. She is not obligated to vacate it. Sources close to the litigation do not expect any decision until early next year.

The conditional settlement comes less than two months after EMI and UMG won sanctions against Hummer Winblad for inadvertently destroying emails related to Napster. The court in October ordered that certain evidence, which could be favorable to Hummer Winblad, could be excluded from the case. The court was to determine which evidence would be excluded at today's hearing or at a later trial.

In addition to the sanctions, another blow came to Hummer Winblad came last May when the court decided that the investments and activities of the VC firm and Bertelsmann could be viewed under the "inducement" standard for copyright infringement. This new standard, which many experts believe casts a broader net to capture more activities within the definition of secondary infringement, was created by the U.S. Supreme Court in the MGM Studios vs. Grokster case last year -- several years after the parties invested in
Napster.

"EMI is pleased to have resolved our issues with Hummer Winblad," says Jeanne Meyer, a spokeswoman for EMI. "This will let us put our full focus on the piracy case at hand - the infringement suits against Bertelsmann for their role in the original Napster."

If the settlement in finalized, the only remaining claims will be those of
EMI and music publishers against Bertelsmann and the publishers against Hummer Winblad. UMG agreed to settle its claims against Bertelsmann for $60 million in September when Vivendi's UMG agreed to purchase the Bertelsmann's BMG Music Publishing unit.

UMG and Hummer Winblad could not be immediately reached for comment.